Examination of Witnesses(Questions 120-139)
SIR NICHOLAS
MONTAGU KCB, MR
DAVID HARTNETT
AND MR
STEPHEN BANYARD
MONDAY 20 MAY 2002
Mr Steinberg
120. The last time we discussed this—and
I cannot remember whether it was with you or with Rachel Lomax—
(Sir Nicholas Montagu) I sincerely hope that if it
was on tax credits it was with me. I should not like it if Rachel
has been poaching off her territory.
121. What appears in paragraph 3.11 seems to
bear out what I was saying last time we discussed this. At the
time I was very concerned that it appeared to be reasonably simple
for somebody to tell a simple lie when filling in the application
form, particularly regarding their marital status, to defraud
the system. For example, husbands or partners leave the nest or
say they have left the nest, the working families' tax credit
being awarded then they miraculously make up and come back again.
I have been given a number of tip-offs about this happening. Did
you carry out any investigations?
(Sir Nicholas Montagu) Yes, we carry out enormous
numbers of investigations. Basically, we have a comprehensive
strategy to address the risk of fraud or manipulation in both
the tax credits. Bear with me for a slightly long answer. What
we have is a basic, up-front clerical check of identity. We sift
out potential cases for referral and then the dedicated compliance
staff mentioned in Sir John's report select cases for inquiry.
What we did was to build on the checks for benefits in payment
used by the Department for Work and Pensions, which may be why
Rachel came into your mind, but we added our own checks against
our own data. The main difference is that we actually use risk
assessment and post-payment checks, as we already do for tax and
national insurance contributions. We will check income data against
the system which supports pay-as-you-earn tax or self-assessment.
We tackle misrepresentation of circumstances, like living together,
through our data warehouse. Do we have the same address for someone
else not mentioned? We do have a pretty comprehensive strategy.
We check with employers to ensure that employees do not overstate
their hours.
122. How many cases of fraud did you find?
(Sir Nicholas Montagu) Fraud is difficult to establish.
What we are talking about is a spectrum which covers everything
from innocent misrepresentation through to "Well, it's worth
a try", through to the kind of hard determined fraud which
we prosecute. Somewhere I have statistics for prosecutions. In
2000-01 we prosecuted only two cases, but bear in mind—
123. I gave you information about 14 in one
place doing it.
(Sir Nicholas Montagu) I have two where there were
criminal proceedings.
124. Information was given to me that at least
14 people were doing it in the one establishment. You are telling
me that you have prosecuted two people in the whole country.
(Sir Nicholas Montagu) We obtained two convictions
during that year. While we are talking we will fiddle around with
our papers and at the end of your questioning I will come back
with the figure on that for you.
125. I find that quite staggering. After all
the explanation you have given me on how deeply you go into it,
you have found two people fiddling the working families' tax credit
in the whole of the country.
(Sir Nicholas Montagu) No. Dave has given me the figures.
Sixteen individual prosecutions plus two of collusive employers.
126. That is 18 cases out of 1.3 million people
who are claiming it.
(Sir Nicholas Montagu) Yes.<fu2>
<fo2> Note by witness: A total of 16
prosecution cases were instigated in 2000-01, of which only two
were completed in Court. The two collusive employer prosecutions
were included in, rather than in addition to, that figure.
127. I was told of 14 in one place in my constituency.
(Sir Nicholas Montagu) May I just say, as I have said
in writing to you, that if your informant would like to get in
touch with the area directors whose names I have given you, we
always act on third party information.
128. I was going to come to that. How seriously
do you take tip-offs?
(Sir Nicholas Montagu) Utterly.
129. I gave you a tip-off and you do not seem
to have taken it seriously.
(Sir Nicholas Montagu) You gave me a tip-off and I
wrote to you and said that if you could give our people more detail
we would look into it. Whenever we get a tip-off we look into
it. What we do not do and cannot do is tell the informant what
happened, which some informants find frustrating, because we are
bound by statutory rules of confidentiality.
130. How many tip-offs did you get last year?
(Sir Nicholas Montagu) I do not have a figure for
that off hand.
131. How much money did you recover because
of tip-offs?
(Sir Nicholas Montagu) I do not know whether we have
information in that form. If we do I shall let you have it. Sixteen
thousand tip-offs, but I do not know whether we have a figure
for the amount of money recovered.<fu3>
<fo3> Note by witness: This figure relates
specifically to allegations referred to the Inland Revenue via
the Department for Work and Pensions' National Benefits Fraud
Hotline. The precise figure is 16,676. The amount of money recovered
as a result of reviewing those `tip-offs' was £743,140. These
figures relate to the period 1 October 1999, when working families
tax credit was introduced, to 31 December 2001, and are available
only as a result of a specific one-off exercise carried out in
January 2002 to answer a Parliamentary Question. We do receive
other types of information that could be described as `tip-offs'.
This information, however, is reviewed in the same way as other
referrals to our Tax Credit Compliance Co-ordination Unit.
132. This is interesting. Sixteen thousand tip-offs
and two prosecutions.
(Sir Nicholas Montagu) No; 16 prosecutions.
133. Sixteen thousand tip-offs and 16 prosecutions.
(Sir Nicholas Montagu) Yes, but they are not all as
tax credit literate as you are.
134. I do not claim it.
(Sir Nicholas Montagu) The people tipping off. Quite
a lot of tip-offs will be "Did you know he is working?".
Of course we knew he was working. That is what working families'
tax credits are for. Not all the tip-offs are well founded. Even
where they are, there may not be enough to prosecute. Remember
that an important part of our work is educating people. Remember
also that by definition a lot of these people will be people we
actually want to go on helping.
135. Let us move on slightly. According to the
report, 3,250 cases were investigated. Is that right?
(Sir Nicholas Montagu) You are looking at paragraph
3.14. This is the representative sample.
136. Yes, that is right. Out of 1.225 million
claimants you looked at 3,250 cases. Is that right? That seems
to me to be a very small sample.
(Sir Nicholas Montagu) Yes.
137. How can you derive any sort of information
from that? Do you regard it as accurate?
(Sir Nicholas Montagu) We regard it as statistically
valid. Yes, of course you are right that it was a small sample.
What we wanted was a structured study which would give us an indication
of the likely levels and nature of fraud, or, let me say, non
compliance because that covers everything from innocent error
through to determined fraud. Our analysts advise that this was
a statistically valid sample. Of course we could have done a bigger
one, but it would have taken much longer to complete.
138. Let us move on to paragraph 3.18. Looking
at this paragraph, it tells us that there were 26,500 cases accepted
for inquiry and 3,600 were dropped because they were regarded
as low risk. What is the difference between high risk and low
risk? I am asking that quite seriously.
(Sir Nicholas Montagu) Basically you are talking about
people who are compliance experts looking at cases referred to
them and thinking actually this does not look that suspicious.
What we had to do was make the case for following up simple aspect
inquiries against the other imperative of making prompt and accurate
payments to people who needed it. What we did was to end the inquiries
into simple cases where the work done to date made it look as
though they were unlikely to be non-compliant.
139. Would it be fair to say that you dropped
these cases because there was a lack of resources to do the lot
and you went for what you thought were the higher risk ones? I
am not quite sure what the higher risk ones are.
(Sir Nicholas Montagu) It would not be wholly wrong,
but it would be simplistic. If we had had a whole lot more people
we could have followed these cases right through and at the same
time concentrated on getting the right payments to the right people
at the right time. Life being as it is, we have to make choices.
We looked at the work done to date on these cases, picked out
the ones which did not look as though they were compliant, looked
at them again before we discontinued work and closed them down.
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